Cost of exchanges shoots up

The Obama administration’s best guess of how much it will spend to subsidize insurance on Obamacare exchanges shot up substantially this year thanks in large part to the U.S. Supreme Court.

But while the exchange costs rise, the Medicaid spending will probably be less than initially forecast as some states decline the expansion.

Story Continued Below

According to the new White House budget, from the time the exchanges open in 2014 to 2021, the administration expects to spend about $606 billion on subsidies, a massive commitment of federal resources.

That’s about 27 percent more than the $478 billion projected in the president’s budget last year, and 65 percent more than the $367 billion for the same period in the 2012 budget.

But experts — and government actuaries — attribute much of the jump to the Supreme Court’s changing the rules of the game when it made the Medicaid expansion under the health law optional for states.

So in states that choose not to expand — still a very fluid situation with only a handful of “hell no” states but many more still up in the air — some of the people who would have been covered by Medicaid will be eligible for subsidies on the exchanges.

The law provides generous premium subsides to make coverage affordable for individuals earning from 100 percent to 400 percent of the federal poverty level. And the subsidies are expensive, especially for those in the lower end of that range.

The Congressional Budget Office estimates that it will cost about $9,000 in subsidies for a person who would have qualified for Medicaid under the expansion — compared to $6,000 for Medicaid coverage.

On the other hand, CBO projects that 3 million fewer people will be covered in 2022 because of state decisions not to expand Medicaid. On balance, CBO projects the ruling will save the government about $80 billion through 2022.

The Supreme Court ruling might be “a blessing in disguise,” said Len Nichols, director of the Center for Health Policy Research and Ethics at George Mason University and a supporter of the health law. “It provides some savings upfront, which is welcome and will give states some time to buy in.”

But the budget makes the numbers difficult to compare. It projects the expected premium subsidies specifically but does not break out the expected spending on the Medicaid expansion in a similar way. This year, the budget did revise down its total expected Medicaid spending in 2020 by about $135 billion, although the reduction is only partly due to consequences from the court.

The truth is that the cost is still a guessing game. States are still trying to make up their minds on what to do. And it’s not known how many people will enroll in the state-based exchanges, with or without Medicaid expansion.

Also unknown: how much insurance companies are going to charge for the federal health care law’s improved coverage requirements next year, a source of much speculation now. The cost of subsidies could increase sharply depending on the premiums insurers want to charge.